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Worried about Coles and Woolworths? Then look in the mirror!

There is a view that the major supermarket chains, Coles and Woolworths, can behave without restraint. Under this view the two retailers can act with impunity to sell whatever products they choose, regardless of the prices offered to suppliers or the desires of their customers.

Experience tells us that this view is clearly wrong. Like all other retailers, Coles and Woolworths answer to their customers. And this means that when we judge the behaviour and effects of the major supermarket chains we are judging ourselves.

An extreme example of the need to respond to customers was presented late last week. Woolworths supermarkets had decided to sell battery-powered sex toys. But, as the Sydney Morning Herald reports, faced with a public backlash and a potential boycott, Woolworths: “sent an email to all store managers of Friday afternoon advising then to withdraw the products immediately”.

By itself, this example represents an amusing case of a retail gorilla bowing down to outside pressure. But it is not an isolated incident.

For example, while Woolworths was dealing with sex toys last Friday, Coles was setting up a deal with Simplot to locally source its own-brand frozen vegetable products. For domestic farmers, Coles noted that: “It means something like two and a half million additional kilograms of Australian grown product [a year]”.

Earlier this year, Coles signed a ten-year deal with the dairy farmers cooperative, Murray-Goulburn, claiming that the deal was a major win for farmers. Meanwhile Woolworths has signed a deal with SPC-Ardmona to ensure its own-brand canned fruit is Australian grown. Woolworths now claims that “96% of our fruit and veg and 100% of our fresh meat comes from Australia”.

This change of heart by the retailers appears to be driven by customer reaction to bad publicity. This year, the major supermarkets have faced a wave of adverse stories.

The ACCC brought an action against Coles earlier this year for ‘misleading and deceptive conduct’ when selling ‘fresh baked bread’. The ACCC has also highlighted concerns over petrol discounting by Coles and Woolworths. As Rod Sims, the Chair of the ACCC noted:

“While large shopper docket discounts provide short term benefits to some consumers, the likely harm to other fuel retailers and therefore to competition and the competitive process for petrol retailing could well be substantial”.

However, the greatest public concern has been the treatment of Australian farmers, particularly since the introduction of ‘one dollar per litre’ milk. So we should not be surprised that the major supermarkets have moved to stock more local produce and to set up supply arrangements that clearly benefit local farmers.

When customers complain, even retail gorilla’s listen!

Coles and Woolworths behaviour, however, highlights the underlying source of their marketing and their market power. The customers.

The two supermarket giants reached their current positions because people choose to shop at them rather than the competitors. We may rail against the closure of a small retailer when Coles or Woolworths opens up nearby, but the real cause of the closure is, well, us! As consumers, we choose to buy from Coles and Woolworths rather than the retail alternatives. We may complain but the low prices, the product selection, the convenience or whatever else, draws us in to buy at the major supermarkets and, in so doing, we slowly but surely push the retail competitors out of the market.

This is not anti-competitive; it is the very nature of competition. Businesses who best serve customers win. But when we complain, we should look in the mirror. Because it is our choices as consumers that decide who wins and who loses in the retail wars.

Put simply, Coles and Woolworths have succeeded because they are so damn good at giving us what we want!

It is not like this in some other countries. On a recent visit to Spain I noticed that many of their supermarkets were small, poorly stocked and the quality of the merchandise was woeful by Australian standards. But there are a lot more small supermarkets. Why? Because regulations have historically restricted large supermarkets. This may benefit the ‘mum and dad’ grocers but the consumers end up paying higher prices for lower quality product.

And this is the problem with the potential political interventions in Australia. In the lead up to the last election, Bob Katter introduced the Reducing Supermarkets Dominance Bill into parliament. It was supported by Nick Xenophon and Andrew Wilkie. It would have required Coles and Woolworths to sell about half their stores or to break into smaller companies. It would have benefited small retailers by hurting competitors. It would have made us look like Spain.

The major supermarkets are no angels. But they do respond to customers’ demands. So if you want more small grocers, you have the answer. Shop at them. But do not call on the politicians to make that decision for you.

Join the conversation

43 Comments sorted by

  1. Rene Oldenburger

    Haven't got one

    I suppose if Woollies want to sell vibrators that's up to them, but why shouldn't they sell porn magazines or movies as well? I think they will sell more of those than vibrators

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  2. Stephen Ralph

    carer at n/a

    We still need to be ever vigilant and keep the "bastards honest" to paraphrase.

    We need to always note where the food we eat is sourced, and exactly WHAT we are eating, including the sugar,salt and other nasties.

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  3. David Stein

    Businessman

    "The two supermarket giants reached their current positions because people choose to shop at them rather than the competitors.
    "This is not anti-competitive; it is the very nature of competition."

    The framing of a discussion of grocery retail competition between the 'small' guys and the 'large' Coles and Woolies ignores significant changes which build significant obsolescence into Coles and Woolies business model.
    While Coles and Woolies attempt to employ anti-competitive tricks to try to…

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  4. David Arthur

    resistance gnome

    As well as Coles and Woolworths succeeding because they are good at providing what we want, perhaps the success of Coles and Woolworths is also shaped by their being so good at shaping what it is we want.

    When you are fleeing from a rampaging lion, you don't need to outrun the lion - you only need to outrun your hiking companion.

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    1. David Arthur

      resistance gnome

      In reply to Stephen Ralph

      Thanks for that, you've missed my point, which is that people get to exercise choice only between what is actually provided rather than what is best.

      I didn't even try Cooper's Pale Ale until ~2004, for example; it wasn't available where I was before that so the choice was never there.

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  5. Bart Brighenti

    Farmer

    I think you will find that what you call choice is what the big two decide for you to choose between, How would the consumer know of a better product or variety if they never see it, Happens over and over.

    As for inferior products overseas, how would you know, Australian Labelling laws that fail to empower the consumer with the information needed to make a decision as to the country of origin and standards that they are produced . Look at the enquiries and you will find that the supermarkets support…

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    1. Jenna Cowie

      Dietitian

      In reply to Bart Brighenti

      Great to hear from a farmer, thanks Bart, to know I've got my head around this in the right way. I entirely agree - we think we live in a democracy but do we really take this any more seriously than voting (at the end of the day) for one of two parties who will decide everything else for us? Same with food - we don't really get a say - WW and C present the options, we choose what we 'want', which is based on marketing more than we would like to accept. I've told this story many times - I remember…

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    2. David Stein

      Businessman

      In reply to Bart Brighenti

      Excellent comment Bart.
      I didn't even think about food labeling and other disclosures. There are a million other anti-competitive tricks in the stores including endcap promotions and massive rebates for shelf placement. You almost have to train yourself to look up and down to make sure you don't look at eye level to avoid the shelf placement shenanigans. Of course the consumer is never aware of these manipulative practices from the moment you step inside the store.

      To think that Coles and Woolies don't behave as oligopolists with a very thin veneer of competition is absurd.
      I'm not totally convinced a future of giant warehouse / club type stores will be any better but thanks again for your excellent comment.

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    3. Stephen Gately

      Founder Managing Director (BuyAustralianMade.com.au) at BuyAustralianMade

      In reply to David Stein

      Agree with your sentiments Bart. 40 years ago my father (a farmer) always bought fuel when we were away from the farm from independent servo's, the reason he gave me then was that if it wasn't for the independents there wouldn't be competition and fuel prices would be higher, so to make sure they survived you had to buy fuel from them. Not too many independents left now and as far as competition, that has in effect disappeared as well.

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    4. Stephen Gately

      Founder Managing Director (BuyAustralianMade.com.au) at BuyAustralianMade

      In reply to Bart Brighenti

      Agree with your sentiments Bart. 40 years ago my father (a farmer) always bought fuel when we were away from the farm from independent servo's, the reason he gave me then was that if it wasn't for the independents there wouldn't be competition and fuel prices would be higher, so to make sure they survived you had to buy fuel from them. Not too many independents left now and as far as competition, that has in effect disappeared as well.

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  6. Mike Brisco

    Scientist at Flinders University of South Australia

    David Arthur makes a good point - retailers work hard to shape our wants, through advertising. They train us to want what they sell, and to visit them.

    Here's the true test. Ban junk mail. Ban TV commercials, newspaper spreads, websites, coupons. Ban discounts on fuel, and loss-leaders like the $1 loaf. Ban also, what pays for these loss-leaders - the small insidious mark-ups on hundreds of other lines.

    That done, consumers can choose rationally, based on quality, honest pricing of each item, and quality of service.

    That would level the playing-field, between Coles/Woollies, and smaller stores.

    So let's level it, and then let's see where people choose to go.

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  7. Peter Strong

    Executive Director

    Many people have no choice but to shop at Coles or Woolies because in a loose partnership with developers and the biggest landlords they control urban planning. It is about real choice for consumers which is compromised by urban planning that creates local retail monopolies.

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    1. Maryann Strickling

      Urban Designer

      In reply to Peter Strong

      Absolutely right, and the lack of council and state political will around this is appalling as well as socially and economically destructive.

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  8. John Newton

    Author Journalist

    I do shop at smaller retailers. I am lucky enough to be able to choose to buy from people I know and can talk to. Not all Australians have that luxury.

    There are two problems here. Firstly, the duopoly is screwing producers, and buying more and more food from overseas . Secondly most Australians don't give a stuff.

    We are entering into an era of what's in it for me presided over by the Emperor of Me.

    I do hope we grow out of it quickly

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  9. Kevan Daly

    Investor Retiree

    I'm pleased to see that you managed to slip an article complimentary to WOW and CML past the editor.

    The only jarring note for me was the para:"And this means that when we judge the behaviour and effects of the major supermarket chains we are judging ourselves."

    With my shareholder hat on (WOW, WES and MCS) I judge supermarkets on their ability to grow earnings per share and the margin they achieve on sales (distributional efficiency). How is that relevant to judging myself?

    With my shopper hat on I continually quantify the price/value tradeoff of the items for sale (does Coke's taste really deserve the 20% price premium over Pepsi?). How does that constitute a self valuation.

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    1. Jenna Cowie

      Dietitian

      In reply to Kevan Daly

      I assume these are rhetorical questions... perfect example of self-valuation - we get up WW and C for valuing profit over everything else... but we choose to do the same when we shop there.

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  10. Stephen Gately

    Founder Managing Director (BuyAustralianMade.com.au) at BuyAustralianMade

    The future of so many things in Australia is in the hands/wallets of shoppers. If shoppers want to be able to buy Australian grown tinned fruit then they have to buy it, if shoppers want traditional brands to survive over the generic branded products they have to buy the traditional brands, if shoppers want to be able to buy Australian made clothing, socks, jocks, shoes, furniture, cars, white goods etc etc .... guess what... they have to buy them. It is as simple as this "What you buy TODAY will determine the Australia we live in TOMORROW. What sort of Australia do you want to live in?".

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  11. John Strong

    Adviser

    During the rise and rise of the Grocery duopoly’s dominance they have been instrumental in helping introduce many efficiencies including Just in time philosophies and lean manufacturing. However the strong move to private labels has allowed them to shift the profits available within the supply chain into their own coffers. They have also become the surrogate planning and R&D managers in the food manufacturing business. Effectively they are so large now they are controlling the management decisions of other companies but they have no responsibility to ensure those companies, big and small, survive.

    Unfortunately they are driven by their board demands to make the next 7% increase in profits, so they must keep stripping profits from their suppliers or use cheaper suppliers from overseas whilst our dollar is high. Strategic considerations of maintaining food manufacturing infrastructure in Australia might need more input than the profit demands of the duopoly’s boards.

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    1. Stephen Gately

      Founder Managing Director (BuyAustralianMade.com.au) at BuyAustralianMade

      In reply to John Strong

      Well said John. What can be done to bring back the profit sharing to growers and processors? Shoppers purchasing decisions can have some impact but those decisions are too far away from what is driving the decisions. The solution that I see relates to government policies.

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  12. Sharon Lee

    FlavourCrusader

    I agree with David and Mike, in their assertions that ColeWorths shape consumer desires through marketing including in-store promotions (http://flavourcrusader.com/blog/2012/12/supermarket-merchandising-obesity-obesogenic-environment.

    Furthermore, “a CHOICE survey found that while consumers think that there is not enough competition in the retail grocery sector, 78% of respondents shopped at Coles or Woolworths because they felt they had few other options available to them.”

    And, some communities…

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  13. John Gillam

    Physicist

    The article is nice and while well meant, I think your Spanish comparison is inaccurate and poor. Having spent the last three years in the country I can safely say that anything that might change the Australian (produce) market landscape to resemble Spain would be a blessing.

    Like you, on arrival I found the supermarkets to be small and under-stocked. However, looking outside the supermarkets for food (unusual for Australians) it is apparent that things are just different - and in my opinion…

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  14. James Tilbrook

    Vineyard Owner Winemaker

    If it's your thing, I suggest reading two excellent books on the subject of retail power: The Walmart Effect, about a company that has a turnover exceeding $200 billion, has shut down countless neigbourhood shops and driven the prices so low on products that suppliers are having to source from China putting Americans out of work that used to make them. Another one is: Tescopoly, on the UK supermarket's similar effect on UK high street shops and other effects. I don't shop at Coles and Woollies and try my hardest to stay out of any shops that are part of their empire. The reason? To support local shops, local jobs, keep the money circulating in the local economy, and support local producers. And it doesn't cost much, if anything, more. Fortunately Australian wine hasn't succumbed to the retail giants' pressure on commodities like milk, although it may do if we start importing Chinese wine. Will Australians then wake up and count the cost of the race to the bottom on pricing?

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    1. Stephen Gately

      Founder Managing Director (BuyAustralianMade.com.au) at BuyAustralianMade

      In reply to James Tilbrook

      James, there are few winners in a race to the bottom. If Australians don't wake up before it is too late it will be a difficult and long road back.

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  15. Dorothy Le Conte

    Mother

    I think you may have missed the point. It's true that Woolworths and Coles have pulled their heads in over the last year, but the key is that it was not their sense of doing the right thing that caused the actions, it was the external pressure, both consumer and regulatory, to reign in their behaviour that resulted in a change of direction. Any family supermarket really on the pulse wouldn't be withdrawing sex toys from their shelves right now. and trying to make out they're listening to consumers!
    Companies that were indeed customer-centric would have sensed the mood around milk, permeate, Australian farmers and the rest long ago. In my opinion, Coles and Woolworths get away with what they think they can slip under the radar.
    And the idea that constant price promotion has reduced grocery prices also needs a deeper look. For a "selected" basket, perhaps it's true. Across the board they have risen quite nicely, thanks. Wake up.

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  16. Trevor Kerr

    ISTP

    The Nats & our T-Party analogues are, probably, more concerned for producers than consumers.
    Are there international comparators for milk production? I mean, how much cheaper can a litre of milk be piped out of a dairy farm in Philippines and Brazil? What's the likelihood of one or other of the big two buying dairy properties and staffing them with (low-paid) workers?

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  17. Andrea Shoebridge

    logged in via Facebook

    I beg to differ, having stopped shopping at either Coles or Woollies years ago because they regularly did not have what I wanted, never mind their dubious business practices. I have to agree with the comment that the duopoly more shapes our buying than responds to our needs

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  18. Yosefine Deans

    Chiropractor

    Stephen King, I feel you have written this article from your economics point of view. Not health, not food, not environmental and certainly not able to see that some people are not well informed enough to use logic over insidious and blatant marketing tricks. I agree people need to take responsibility for their food choices. But we do not play on people's ignorance for self gain.

    As to the economics. Coles and Woolworths are actually not cheap particularly for items like fruit and vegetables. The Queen Victoria Market sells far cheaper produce. I know you don't like markets. Then try Organic Shops. The cost of the food from start to finish is calculated. You will not have to pay for it later by being sucked into buying something that you think is cheap in the short term.

    Stephen please feel free to contact me, maybe we can go shopping, cook, then enjoy a meal together. I'd really like to show you a healthier way.

    Yosefine.

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    1. Sharon Lee

      FlavourCrusader

      In reply to Yosefine Deans

      I LOVE this invitation! There's AMAZING food to be found outside the duopoly, go on Stephen take Yosephine up on her offer!

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    2. Stephen King

      Professor, Department of Economics at Monash University

      In reply to Yosefine Deans

      Hi Yosefine

      Unfortunately you assume that because I note that shopping decisions effect the viability of retailers then I shop at the major supermarkets. No, I usually shop at Box Hill market and would strongly recommend it to all people after great fresh food and the best selection of different ethnic food on the planet! (Although you do have to go down to Canterbury road to get the good Indian grocers).

      Surprising though it seems, I practice what I preach! I support the small, interesting…

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  19. Robert McDougall

    Small Business Owner

    as with many things in Australia, it is peoples apathy and short-sightedness that is the real problem.

    Too much "it's all about me" going on and not enough "what are the long term implications"?

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  20. Don Matthews

    Retired

    We are currently in the north west of Italy, renting apartments in various areas in the Lake District. We therefore have to shop for food.
    Exactly the same circumstances apply here as they have in Australia in that two major supermarket chains have grown to dominate over about 5 or 6 smaller chains which are now hard to find. CoOp and Conad have huge shops in industrial areas surrounded by large car parks, and as those of you who have been to Italy know, parking is a major shopping problem.
    Both these large supermarkets sell their own branded products, with the only exception being dried meat and cheeses.
    The article is correct in that Italians have chosen with their feet to patronise the two large supermarkets because they supply what the Italians want, good quality products at competitive prices and parking.

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  21. The Realist

    Australian

    Both of them are scumbags pushing Australian farmers and manufacturers to the wall everyday. How do I know? Ive met with these scumbags personally as a manufacturer ourselves and you only have to sit with them for 10 minutes to see there brainwashed with there own BS. What really set me onto them was the fact we took two of there liquor buyers to have a look at a number of war memorials wed been cleaning in the Adelaide Hills, through the proceeds of one of our products in which we donate to Legacy…

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    1. Stephen Gately

      Founder Managing Director (BuyAustralianMade.com.au) at BuyAustralianMade

      In reply to The Realist

      A number of manufacturers have told me very similar experiences, but they have little choice but to deal with them because of the market share they have.

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  22. Yosefine Deans

    Chiropractor

    To the Realist:
    Hi, I'm really sorry you had to deal with this immense negativity. I guess most of us face it with them at some point or other. One of many cracking points for me was when they advertise that one particular supermarket aisle is candy free. What the hell about the other aisles? And do you really feel that their limited behaviour is worth commending? I guess they do. Profit perhaps? I think it is ignorance we face. I will not let big companies abuse ignorance for self gain. Doing so would harm them and everybody else. So working for this I found some salvation in the organics industry and all that it encompasses. Check it out. You might be in for a heath boost! Keep in touch if you like, Yosefine.

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  23. Yosefine Deans

    Chiropractor

    Hey Flavour Crusader,
    My name is spelt with a Y not a ph. Easily confused for many. It is just the hebrew translation. Common in some parts of the globe but maybe not here in Melbourne! I hope Stephen from Monash takes me up on this offer. An afterthought was that we 'find' produce together etc rather then use the word 'shop'. And you are most welcome too.
    Yosefine.

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    1. Sharon Lee

      FlavourCrusader

      In reply to Yosefine Deans

      Oops, sorry about that! Yes, and that sounds much nicer, and that does sound like fun :)

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  24. Marian Macdonald

    logged in via Twitter

    The problem with Stephen's argument is that there's no warning label on $1 milk that goes something along the lines of this: "WARNING: If you continue to purchase milk that is unsustainably priced, you risk losing continued supply of fresh, high-quality milk".

    Most consumers are unaware of the impact their choices. Normally, this is fine because the market sorts itself out but Australia's remarkably high concentration of retail market power has affected the ability of the market to self-regulate.

    On the positive side, there are conscientious consumers who do want to know what $1 milk means. It was consumer pressure that forced Coles to make a previously unheard-of 10-year commitment to Australia's big dairy farmer co-operative. A big win for people power!

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  25. Yosefine Deans

    Chiropractor

    Dear Stephen,
    Many thanks for your response. I guess I made presumption after the comparison with Spain. Given your response I would have thought you would like the Spanish system instead of saying "This may benefit the ‘mum and dad’ grocers but the consumers end up paying higher prices for lower quality product." I did not assume that "because I note that shopping decisions effect the viability of retailers then I shop at the major supermarkets." This was a funny equation to me. I guess there are…

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  26. Lee Emmett

    Guest House Manager

    Fresh food prices have skyrocketed since the 'big 2' supermarkets tied up the supply chain. Thank goodness for other competitors, including Aldi, which has forced these giants to lower some grocery prices.

    The ACCC needs to continually monitor this virtual duopoly, whose marketing practices, including their petrol dockets and 'loyalty' cards, are dubious.

    I wonder how much personal information on consumers is stored by these 2 supermarkets. I refuse to participate in these sorts of 'loyalty' programs, where the benefits to the corporations far outweigh those to the individual consumers.

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    1. Stephen Ralph

      carer at n/a

      In reply to Lee Emmett

      Personally I wouldn't have much faith in the ACCC.

      They seem to have an aptitude for ineffectiveness.

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